Two Signs That Health Premiums May Be Set for Big Hikes Under Obamacare

Insurers may have discovered that their beneficiaries are more costly to cover than expected

One of the big unanswered questions about Obamacare is what will happen to health insurance premiums over the next several years. Since the law’s coverage expansion kicked in last year, there have been persistent rumors and reports that health insurers were knowingly under-pricing their offerings, testing the waters and, perhaps, attempting to gain market share early on. Initial premium prices were, unavoidably, set with little real data on the people who would enroll, and thus without a strong indication about the expenses that plans could expect incur.

In addition, health insurance plans were given a backstop during the early years of Obamacare’s coverage expansion in the form of a trio of risk mitigation programs, including the law’s risk corridors, a three-year program, often labeled an insurer bailout, designed to cover a portion of insurer losses should spending go beyond expected level. (Insurers whose costs were lower than expected would help defray the cost of the program by paying into the system, in theory making the system more or less self-supporting.) The hope was that this would give insurers some leeway to keep premiums from rising too much, at least initially.

The question all these variables raised was what would happen to premiums once data came in about the health characteristics of the newly insured, and once the risk corridor backstop expired.

But now there’s a new variable: The risk corridors, if operated in a budget neutral manner as the administration has suggested, may be seriously underfunded. An S&P analysis released at the end of last week warns that the risk corridor program could be “significantly underfunded if the government enforces budget neutrality.”

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